Oriental Patron Reiterates "Buy" rating on TCL Electronics and Raises its Target Price to HK$5.96

Oriental Patron (OP) has issued a research report for TCL Electronics (TCLE, 1070.HK). According to the report, thanks to the 32.5% YoY growth in overseas sales of TCL brand TV, and the 4-month consolidation of Falcon Internet business, TCL Electronics released 1H19 results with revenue up 8% YoY to HK$ 22.7 billion. Overall gross profit margin improved 1.1 ppts to 16.4% in 1H19 due to the lowered panel price as well as improved product mix. TCLE continued to perform stringent control over operating expense, as a result, TCLE achieved 33% YoY increase in profit attributable to owners of the parent after deducting one-time non-operating gain to HK$554 million, beating OP expectations by 10.2%.

OP revised up TCLE's FY19/20E adjusted net profit estimates by 1.1%/3.2% to HK$1,015 million/HK$1,226 million respectively. OP also revised up TCLE's FY19/20 gross profit margin by 0.8ppts/0.9ppts to 16.1%/16.0% respectively as high margin Internet business contribution increasing.

TCL Electronics declared an interim dividend of HK10.56 cents, representing 45% payout ratio after deducting one-time non-operating gain. Its target price was raised from HK$5.80 to HK$5.96.

OP sees a potential re-evaluation opportunity of TCLE on its Internet business given its asset-light model, high margin, and robust growth potential in both China and overseas markets.